Economics news – rates on hold, manufacturing and trade figures disappoint,
Economics news – Base rates
Base rates were left on hold this week and QE spending was held at £375 billion. Real rates adjusted for inflation, are minus 2.3%. Factor in QE allegedly worth a further 4% in rate cuts and monetary policy cannot be more accommodating. Don’t place too much hope on a change in policy when the Canadian comes. Other than flying around in a helicopter, throwing out cash, along with a nominal GDP target, there is not much more the Canook can achieve. As for forward guidance, watch out for the progressive rise in bond yields in the months ahead.
Manufacturing figures were released for March, not much in the data that had not already been factored into the GDP figures for the first quarter. The output index increased to 104.0 from a dismal 102.9 in February. Don’t get too excited, output in the month was down by 1.4% compared to prior year and 3% for the quarter as whole, slightly worse than first thought. The Prime Minister’s plan to re industrialize Britain must be scheduled for later in the year as the march of the makers, rebuilding the work shop of the world is on the back foot once again. Our forecast for the year is for a fall in manufacturing output over the year of around 0.5%, offset by growth in the service sector. We still see positive GDP growth of plus 1% for the year ahead.
Trade figures in March, suggest more of the same disappointment to the rebalancing agenda. Trade is no aid to the UK economy. The trade in goods deficit in March was £8.9 billion in March, offset by a surplus in services of £3.0 billion. For the quarter as a whole, the trade in goods deficit was £25.9 billion in line with our forecast for the year as a whole of around £106 billion. The service sector surplus in the quarter was £17.4 billion, slightly down on last year’s figure but no need as yet to adjust our forecast for the year of around £75 billion. The overall deficit easily financed and placing no great pressure on sterling. No surprises in the latest data set but a wake up call to misdirected policy hopes.
What’s happening in the car market? Registrations in the first four months are up by almost 10%. We are increasing our forecast for the year to just under 2.2 million units. Despite growth in car manufacturing output, the trade deficit will continue to place pressure on the trade figures, the UK will import amost 2 million cars this year.
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What happened to sterling?
The dollar made the news this week, pushing to 101.5 against the yen and to 1.2992 against the Euro. Markets just love the Japanese monetary expansion. Sterling slipped as a result of dollar strength, falling to 1.5356 from 1.5563 against the dollar but unchanged against the euro, 1.1825 from 1.1863.
Oil Price Brent Crude closed at $103.91 from $104.2. No impact on inflation at this level but no evidence of surging world trade either.
Markets, were the beneficiaries of US hopes as the Dow closed above the 15,000 level at 15,118 from 14,974 and the FTSE closed at 6,625 from 6,521. Soon be time to sell in May and go away but don’t buy gilts on the way out.
UK Ten year gilt yields increased to 1.90 from 1.75 and US gilt yields closed at 1.90 from 1.74. As for gold, gold closed at $1447, ever seen a hung chart? Check out the gold price on The Saturday Economist web site.
That’s all for this week, don’t miss The Sunday Times and Croissants out tomorrow.
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